​Finance Minister had promised in his first Budget speech last year that no fresh action would be initiated for any transaction prior to 2012 under the amendment to tax indirect transfers. ​Deepshikha Sikarwar | ET Bureau | December 27, 2016, 08:28 IST

NEW DELHI: Foreign portfolio investors (FPIs) don’t have to worry that the income-tax department will open cases from previous years following a recent clarification on the controversial 2012 retrospective amendment of the I-T law that had spooked them.

A senior government official told ET that all tax demands relating to the retrospective tax on indirect transfers for any past period have to be approved by the government’s high-level committee.

“The latest circular is in line with the law… It only clarifies the position,” said the official, adding that any retrospective application of the law will have to be cleared by the committee.

The committee has not received any reference from the field since it was constituted on any fresh retrospective case, suggesting officials are aware of rules in respect of the 2012 amendment. The panel is headed by Revenue Secretary Hasmukh Adhia. The provision is applicable prospectively on transactions entered into subsequently.

The previous United Progressive Alliance government had introduced the much-criticised retrospective amendment to the Income-Tax Act, 1961, to negate a Supreme Court ruling in favour of Vodafone after a significant tax claim on its 2007 deal with Hutchison Whampoa to buy a majority stake in its Indian telecom subsidiary.

The tax department had on Wednesday clarified that if the shares of an Indian company held by a fund constituted more than 50 per cent of total assets and the value of the holding exceeded Rs 10 crore, the transaction would be taxed in India under the indirect transfer rules.

The official said the circular merely clarifies the intent of the law and was issued only after the board received queries.

Finance Minister Arun Jaitley had promised in his first Budget speech last year that no fresh action would be initiated for any transaction prior to 2012 under the amendment to tax indirect transfers. Assessing officers would have to send a reference to the high-level Central Board of Direct Taxes (CBDT) panel before initiating action in any new case.

Tax experts still see some reason for worry, reasoning that the committee set up by the government to deal with the retrospective amendment covers only pre-2012 cases. “Many of the substantive clarifications in the law were introduced only in 2015, which creates an interim period of uncertainty,” said Abhishek Goenka, partner, tax and regulatory services, PwC. “To this extent, in the absence of any relief, or increase in exemption thresholds, in the recent CBDT circular on the indirect transfer provisions, there could be instances where parties are impacted adversely for past transactions.”

In the last Budget, the government had also announced a one-time amnesty for domestic taxpayers and a resolution scheme for past disputes up to appellate levels, giving an opportunity to finally achieve closure on the muchdebated retrospective tax on indirect transfers by waiving interest and penalties. The scheme ends on December 31.

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